Protectionism worry drags on stocks, dollar hits six-week low

NEW YORK (Reuters) - The U.S. dollar slumped to a six-week low on Monday on worries over a dovish Federal Reserve, while U.S. and European stock markets dipped amid concerns about G20 financial leaders' decision to drop a pledge to keep global trade free and open.

The dollar index, which measures the greenback against a basket of six major currencies, was flat at 100.32 after touching its lowest since Feb. 7 of 100.020. The index extended last week's weakness following recent interest-rate guidance from the U.S. Fed that was less hawkish than many had expected.

Caution prevailed over U.S. and European stock markets after financial leaders of the world's biggest economies made only a token reference to trade on Saturday, acquiescing to an increasingly protectionist United States after a two-day G20 meeting failed to yield a compromise.

European stocks closed modestly lower on the day, with a 3.7-percent fall in Deutsche Bank shares hurting banking stocks.

Worries that Trump's plan to cut taxes and boost the economy could take longer than previously expected also weighed on U.S. shares Monday. Still, the benchmark U.S. S&P 500 stock index is up more than 11 percent since the election of U.S. President Donald Trump in November, spurred by optimism over his plans to reform the tax code and cut regulation.

"It's just one more day delaying talking about policy," said Ian Winer, director of trading at Wedbush Securities in Los Angeles. "The market wants tax reform, and you need to get healthcare done before you get tax reform."

The tech-heavy U.S. Nasdaq Composite index briefly bucked the trend and hit a record intraday peak of 5,915.120 before easing from that high.

A man looks at a electronic board showing the Dow Jones average (top R) and NASDAQ average (top L) outside a brokerage in Tokyo, Japan, November 10, 2016.Toru Hanai

MSCI's all-country world equity index was last down 0.16 points, or 0.04 percent, at 451.1.

The Dow Jones Industrial Average closed down 8.76 points, or 0.04 percent, at 20,905.86. The S&P 500 ended down 4.78 points, or 0.20 percent, at 2,373.47. The Nasdaq Composite ended up 0.53 points, or 0.01 percent, at 5,901.53.

A general view shows the G20 Finance Ministers and Central Bank Governors Meeting in Baden-Baden, Germany, March 17, 2017.Kai Pfaffenbach

The dollar's earlier drop to a multi-week low against major rivals made dollar-priced gold cheaper for non-U.S. investors, helping spot gold prices hit a two-week peak of $1,235.50 an ounce.

"Even though (the Fed) hiked (rates), the perception was that they were mildly dovish. We are seeing continuing dollar sluggishness on the back of that," said Brad Bechtel, managing director at Jefferies in New York in reference to the dollar's earlier weakness.

Oil prices fell as investors continue to grapple with worries about growing U.S. oil output and high inventories.

Brent crude settled down 14 cents, or 0.27 percent, at $51.62 a barrel. U.S. crude settled down 56 cents, or 1.15 percent, at $48.22 a barrel.

U.S. Treasury prices gained as Chicago Federal Reserve President Charles Evans reiterated the U.S. central bank's view that two more interest rate hikes this year. Benchmark 10-year U.S. Treasury notes yields hit a two-week low of 2.466 percent.

Additional reporting by Jamie McGeever and Patrick Graham in London, Tanya Agrawal in Bengaluru and Saqib Ahmed in New York; Editing by Bernadette Baum and Nick Zieminski